Equity Indices To Extend Losses

The Indian equity markets remained extremely volatile in the past one week as the events unfolded unlike the market participants expected them to be. While the RBI surprisingly increased the repo rates by 25 basis points, even the US Fed Chairman Ben Bernanake also cut the monthly bond buying by USD 10 billion to USD 65 billion. The impact of the move by the US Fed was clearly seen on the global Equity markets as the Indices took a nosedive extending losses.

If we take a look at the impact of the move by US Fed, the USD had its biggest monthly gain against a basket of peers since May 2013 as a global sell-off of emerging-market currencies prompted investors to seek the relative safety of haven assets.

It was no wonder that the FIIs showed some amount of aversion to emerging markets with India being no exception. The FIIs which have pulled out USD 1 billion from Indian debt markets last week, would also be in focus. The recent pull-out has brought the monthly purchases of FIIs in debt to around USD 2 billion. The aversion of FIIs would continue to impact the stock markets and expectations are that we are not going to see strong inflows at least till the parliamentary elections are over and would depend on the formation of the new government in May 2014.

While the FIIs are going to be main focus the Q3 results are also going to drive the Indian markets. Till date the results have been in-line with street estimates. Though there are certain surprises from the IT sector (Mainly on account of INR depreciation), results of other sectors are not so encouraging.

As for the data expected in the week, we will have auto companies declaring their monthly volume sales numbers for January along with HSBC Manufacturing PMI on Monday (last reading 50.70) and HSBC Services PMI on Wednesday (last reading 46.70). For the Automobile sales, TVS Motor has been good on YoY basis; however Maruti Suzuki witnessed some dullness on the sales front.  

Asian stocks fell, with the regional benchmark gauge extending its steepest monthly slump since May, after a slowdown in Chinese manufacturing growth added to concern a global economic recovery is faltering. China’s Purchasing Managers’ Index was at 50.5, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Feb. 1 in Beijing. That matched the median estimate of analysts surveyed by Bloomberg News and compared with December’s 51 reading. Though the numbers are not good, the impact of the same could not be seen on the Chinese indices the equity markets are closed as China will be celebrating the spring festival following the Chinese New Year with holidays till 6th February.

As for the performance of various equity indices, Nikkei is trading with deep cuts as the Index is down 1.62% and even Kospi is also down 1.10%. the US markets also closed in negative zone  with Dow Losing 0.94% .

Taking the cues from the Asian peers, even the SGX Nifty is down by 31 points (0.51%). We expect the Indian markets to open gap down today and then stay in a narrow range with a negative bias.